Saturday, November 17, 2007

A monkey would have beaten the pants off the S&P 500 by following Warren’s buying and selling

NEW YORK - BUYING whatever billionaire investment guru Warren Buffett bought, even months after his share purchases, delivered twice the returns of the Standard & Poor’s (S&P) 500 Index during the past three decades.

Investors would have earned an annual return of 24.6 per cent by buying the same stocks as Mr Buffett after he disclosed his holdings in regulatory filings, sometimes four months later, according to a soon-to-be released study by Professor Gerald Martin of American University in Washington and Professor John Puthenpurackal of the University of Nevada.

The S&P 500 rose 12.8 per cent a year in the same period.

‘A monkey would have beaten the pants off the S&P 500 by following Warren’s buying and selling,’ said Mr Mohnish Pabrai of Pabrai Investment Funds. Mr Pabrai and a friend paid US$650,100 (S$941,000) this year in an annual charity auction to lunch with the 77-year-old Mr Buffett.

Mr Buffett’s stock picks outperformed shares of his company, Berkshire Hathaway, from 2002 to last year when Berkshire shares advanced at a yearly rate of 7.8 per cent.

By comparison, Berkshire’s holdings in USG, the biggest maker of gypsum wallboard in North America, increased by about 1,140 per cent, and in PetroChina, China’s largest oil producer, soared eightfold.

Prof Martin said he and Prof Puthenpurackal initiated their study because they wanted to know whether it was better to purchase the stocks that Mr Buffett was buying or invest in Berkshire. The market-beating returns on copycat investing are based on buying and selling at the end of the month following disclosure over 31 years.

‘Over the past five years, people haven’t been attributing enough of the value Buffett adds to Berkshire,’ Prof Martin said. ‘They’re missing his managerial expertise and how that makes his business grow.’

‘We don’t go in and out of the market,’ said Mr Buffett, explaining his investment strategy. ‘I simply look at individual businesses and try to figure out where they’re likely to be in 5 or 10 or 20 years from now.’